ROCKET PHARMACEUTICALS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 filed with theU.S. Securities and Exchange Commission , or theSEC , onMarch 6, 2020 , or our 2019 Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those discussed in the section entitled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. In preparing this MD&A, we presume that readers have access to and have read the MD&A in our 2019 Form 10-K, pursuant to Instruction 2 to paragraph of Item 303 of Regulation S-K. Unless stated otherwise, references in this Quarterly Report on Form 10-Q to "us," "we," "our," or our "Company" and similar terms refer toRocket Pharmaceuticals, Inc. We are a clinical-stage, multi-platform biotechnology company focused on the development of first, only and best-in-class gene therapies, with direct on-target mechanism of action and clear clinical endpoints, for rare and devastating diseases. We have four clinical-stage ex vivo lentiviral vector ("LVV") programs currently enrolling patients inthe United States ("U.S.") andEurope for Fanconi Anemia ("FA"), a genetic defect in the bone marrow that reduces production of blood cells or promotes the production of faulty blood cells, Leukocyte Adhesion Deficiency-I ("LAD-I"), a genetic disorder that causes the immune system to malfunction, Pyruvate Kinase Deficiency ("PKD"), a rare red blood cell autosomal recessive disorder that results in chronic non-spherocytic hemolytic anemia and Infantile Malignant Osteopetrosis ("IMO"), a genetic disorder characterized by increased bone density and bone mass secondary to impaired bone resorption. Of these, both the Phase 2 FA program and the Phase 1/2 LAD-I program are in registration-enabling studies in the US andEurope . In addition, in theU.S. we have a clinical stage in vivo adeno-associated virus ("AAV") program for Danon disease, a multi-organ lysosomal-associated disorder leading to early death due to heart failure. We have global commercialization and development rights to all of these product candidates under royalty-bearing license agreements. Additional work in the discovery stage for an FA CRISPR/CAS9 program as well as a gene therapy program for the less common FA subtypes C and G is ongoing. Recent Developments OnFebruary 20, 2020 , we entered into separate, privately negotiated exchange agreements (the "Exchange Agreements") with certain holders of our outstanding 5.75% Convertible Senior Notes due 2021 (the "2021 Convertible Notes") to extend the maturity date by one year. Pursuant to the Exchange Agreements, we exchanged approximately$39.35 million aggregate principal amount of the 2021 Convertible Notes (which represented approximately 76% of the aggregate outstanding principal amount of the 2021 Convertible Notes) for (a) approximately$39.35 million aggregate principal amount of 6.25% Convertible Senior Notes dueAugust 2022 (the "2022 Convertible Notes") (an exchange ratio equal to 1.00 2022 Convertible Note per exchanged 2021 Convertible Note) and (b)$119,416 in cash to pay the accrued and unpaid interest on the exchanged 2021 Convertible Notes from, and including,February 1, 2020 toFebruary 20, 2020 . OnJune 12, 2020 , we entered into an exchange agreement (substantially in the form of the exchange agreement we entered into with holders in prior exchange transactions for our 2021 Convertible Notes with holders of the 2021 Convertible Notes, wherein we exchanged$7.5 million aggregate principal amount of the 2021 Convertible Notes for (a)$7.5 million aggregate principal amount of the 2022 Convertible Notes (an exchange ratio equal to 1.00 2022 Convertible Notes per exchanged 2021 Convertible Note) and (b) approximately$11,000 to pay the accrued and unpaid interest on the exchanged 2021 Convertible Notes from, and including,February 1, 2020 , to, but excluding, the closing date of the exchange transaction, adjusted to take into account the unearned accrued interest on the 2022 Convertible Notes from, and including,February 20, 2020 , to, but excluding, the closing date of the exchange transaction. The 2022 Convertible Notes were issued in a private placement exempt from registration in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended.
Gene Therapy Overview
Genes are composed of sequences of deoxyribonucleic acid ("DNA"), which code for
proteins that perform a broad range of physiologic functions in all living
organisms. Although genes are passed on from generation to generation, genetic
changes, also known as mutations, can occur in this process. These changes can
result in the lack of production of proteins or the production of altered
proteins with reduced or abnormal function, which can in turn result in disease.
Gene therapy is a therapeutic approach in which an isolated gene sequence or
segment of DNA is administered to a patient, most commonly for the purpose of
treating a genetic disease that is caused by genetic mutations. Currently
available therapies for many genetic diseases focus on administration of large
proteins or enzymes and typically address only the symptoms of the disease. Gene
therapy aims to address the disease-causing effects of absent or dysfunctional
genes by delivering functional copies of the gene sequence directly into the
patient's cells, offering the potential for curing the genetic disease, rather
than simply addressing symptoms.
We are using modified non-pathogenic viruses for the development of our gene
therapy treatments. Viruses are particularly well suited as delivery vehicles
because they are adept at penetrating cells and delivering genetic material
inside a cell. In creating our viral delivery vehicles, the viral (pathogenic)
genes are removed and are replaced with a functional form of the missing or
mutant gene that is the cause of the patient's genetic disease. The functional
form of a missing or mutant gene is called a therapeutic gene, or the
"transgene."
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The process of inserting the transgene is called "transduction." Once a virus
is modified by replacement of the viral genes with a transgene, the modified
virus is called a "viral vector." The viral vector delivers the transgene into
the targeted tissue or organ (such as the cells inside a patient's bone marrow).
We have two types of viral vectors in development, LVV and AAV. We believe that
our LVV and AAV-based programs have the potential to offer a long-lasting and
significant therapeutic benefit to patients.
Gene therapies can be delivered either (1) ex vivo (outside the body), in which
case the patient's cells are extracted and the vector is delivered to these
cells in a controlled, safe laboratory setting, with the modified cells then
being reinserted into the patient, or (2) in vivo (inside the body), in which
case the vector is injected directly into the patient, either intravenously
("IV") or directly into a specific tissue at a targeted site, with the aim of
the vector delivering the transgene to the targeted cells.
We believe that scientific advances, clinical progress, and the greater
regulatory acceptance of gene therapy have created a promising environment to
advance gene therapy products as these products are being designed to restore
cell function and improve clinical outcomes, which in many cases include
prevention of death at an early age.
Pipeline Overview
The chart below shows the current phases of development of Rocket's programs and product candidates:
[[Image Removed: graphic]]
LVV Programs. Rocket's LVV-based programs utilize third-generation, self-inactivating lentiviral vectors to target selected rare diseases. Currently, Rocket is developing LVV programs to treat FA, LAD-I, PKD, and IMO. AAV Program:
Danon Disease:
Danon disease is a multi-organ lysosomal-associated disorder leading to early
death due to heart failure. Danon disease is caused by mutations in the gene
encoding lysosome-associated membrane protein 2 ("LAMP-2"), a mediator of
autophagy. This mutation results in the accumulation of autophagic vacuoles,
predominantly in cardiac and skeletal muscle. Male patients often require heart
transplantation and typically die in their teens or twenties from progressive
heart failure. Along with severe cardiomyopathy, other Danon disease symptoms
can include skeletal muscle weakness, liver disease, and intellectual
impairment. There are no specific therapies available for the treatment of Danon
disease. Danon disease is estimated to have a prevalence of 15,000 to 30,000
patients in the U.S. and the EU, however new market research is being performed
and the prevalence of patients may be updated in the future.
In January 2019 , we announced the clearance of our IND application by the FDA
for RP-A501 for the treatment of Danon disease, and in February 2019 , we were
notified by the FDA that we were granted Fast Track designation for RP-A501.
University of California San Diego Health ("UCSD") is the initial and lead
center for our Phase 1 clinical trial.
In May 2, 2019 , we presented additional preclinical data at the ASCGT annual
meeting, indicating that high VCN, in Danon disease-relevant organs in both mice
and non-human primates ("NHN's"), with high concentrations in heart and liver
tissue (for NHP, cardiac VCN was approximately 10 times higher on average than
in skeletal muscle and central nervous system), which is consistent with
reported results in several studies of heart tissue across different species.
There were no treatment-related adverse events or safety issues up to the
highest dose.
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In the third quarter of 2020, Danon disease received Rare Pediatric Disease Designation. As ofSeptember 30, 2020 , we have dosed four patients in the RP-A501 Phase 1 clinical trial, and completed the first, low dose, cohort of the study. Based on the preliminary safety and efficacy data review of this completed cohort, the FDA, the Independent Data Safety Monitoring Committee ("IDSMC") and hospitalInstitutional Review Board ("IRB") have provided clearance to advance to a higher dose cohort in the Phase 1 trial. The first patient in this higher dose cohort was treated in the third quarter. As Rocket moves into the next cohort in its clinical trial of RP-A501 for the treatment of Danon Disease, the world-renownedChildren's Hospital of Philadelphia joinedUCSD as a trial site. With this addition, Rocket brings anEast Coast presence to the trial, facilitating broader patient access.
Fanconi Anemia Complementation Group A (FANCA):
FA, a rare and life-threatening DNA-repair disorder, generally arises from a
mutation in a single FA gene. An estimated 60 to 70% of cases arise from
mutations in the Fanconi-A ("FANCA") gene, which is the focus of our program. FA
results in bone marrow failure, developmental abnormalities, myeloid leukemia
and other malignancies, often during the early years and decades of life. Bone
marrow aplasia, which is bone marrow that no longer produces any or very few red
and white blood cells and platelets leading to infections and bleeding, is the
most frequent cause of early morbidity and mortality in FA, with a median onset
before 10 years of age. Leukemia is the next most common cause of mortality,
ultimately occurring in about 20% of patients later in life. Solid organ
malignancies, such as head and neck cancers, can also occur, although at lower
rates during the first two to three decades of life.
Although improvements in allogeneic (donor-mediated) hematopoietic stem cell
transplant ("HSCT"), currently the most frequently utilized therapy for FA, have
resulted in more frequent hematologic correction of the disorder, HSCT is
associated with both acute and long-term risks, including transplant-related
mortality, graft versus host disease ("GVHD"), a sometimes fatal side effect of
allogeneic transplant characterized by painful ulcers in the GI tract, liver
toxicity and skin rashes, as well as increased risk of subsequent cancers. Our
gene therapy program in FA is designed to enable a minimally toxic hematologic
correction using a patient's own stem cells during the early years of life. We
believe that the development of a broadly applicable autologous gene therapy can
be transformative for these patients.
Each of our LVV-based programs utilize third-generation, self-inactivating
lentiviral vectors to correct defects in patients' HSCs, which are the cells
found in bone marrow that are capable of generating blood cells over a patient's
lifetime. Defects in the genetic coding of HSCs can result in severe, and
potentially life-threatening anemia, which is when a patient's blood lacks
enough properly functioning red blood cells to carry oxygen throughout the body.
Stem cell defects can also result in severe and potentially life-threatening
decreases in white blood cells resulting in susceptibility to infections, and in
platelets responsible for blood clotting, which may result in severe and
potentially life-threatening bleeding episodes. Patients with FA have a genetic
defect that prevents the normal repair of genes and chromosomes within blood
cells in the bone marrow, which frequently results in the development of acute
myeloid leukemia ("AML"), a type of blood cancer, as well as bone marrow failure
and congenital defects. The average lifespan of an FA patient is estimated to be
30 to 40 years. The prevalence of FA in the US and EU is estimated to be about
4,000, and given the efficacy seen in non-conditioned patients, the addressable
annual market opportunity is now thought to be in the 400 to 500 range.
We currently have one LVV-based program targeting FA, RP-L102. RP-L102 is our
lead lentiviral vector-based program that we in-licensed from Centro de
Investigaciones Energéticas, Medioambientales y Tecnológicas ("CIEMAT"), which
is a leading research institute in Madrid, Spain . RP-L102 is currently being
studied in our Phase 2 registration enabling clinical trials treating FA
patients at the Center for Definitive and Curative Medicine at Stanford
University School of Medicine ("Stanford") and Hospital Infantil de Nino Jesus
("HNJ") in Spain . The Phase 2 portion of the trial is expected to enroll ten
patients total from the U.S. and EU. Patients will receive a single IV infusion
of RP-L102 that utilizes fresh cells and "Process B" which incorporates a
modified stem cell enrichment process, transduction enhancers, as well as
commercial-grade vector and final drug product.
At the virtual 2020 American Society of Gene & Cellular Therapy ("ASGCT")
conference, on May 12, 2020 , we presented longer-term data from the FANCOLEN-I
study of RP-L102 "Process A" for FA. Patients followed for a year or more after
treatment with RP-L102 "Process A" continued to demonstrate durable engraftment
and hematologic correction, without the use of pre-treatment conditioning
regimens. Data for the initial four treated patients is available through 33-36
months of follow-up, and indicates ongoing progressive increases in the
percentage of peripheral blood cells displaying gene-marking (evidence of a
corrected FA gene) over time, with concomitant increases in the percentages of
cells in blood and bone marrow resistant to DNA-damaging agents DEB and MMC,
including evidence of engraftment leading to bone marrow restoration exceeding
the 10% threshold agreed to by the FDA and EMA for the ongoing Phase 2 trial. In
patient 02002, who received adequate drug product, hemoglobin levels are now
similar to those in the first year after birth, suggesting hematologic
correction over the long term; increases in hemoglobin subsequent to 24 months
of follow-up were also identified in patient 02006, who also received adequate
drug product. Evidence of progressive engraftment (and hematologic stability)
have also been noted in some of the subsequent 5 patients treated and appear
related to the dose and level of genetic correction in the investigational
product administered.
Also at ASGCT, Rocket presented initial results from two pediatric patients
treated with "Process B" RP-L102, prior to development of severe bone marrow
failure, in our Phase 1 trial of RP-L102 for FA. No drug-related safety or
tolerability issues have been reported. At junctures during and through one year
following therapy, one patient had evidence of hematologic stability,
preliminary evidence of genetic correction in blood and bone marrow cells, and
evidence of increasing resistance of bone marrow cells to DNA-damaging agents.
The second patient had blood count stability during the initial 6 months
following therapy and then had decreased blood counts secondary to an Influenza
B infection requiring red blood cell transfusions with stabilization and
decreasing transfusion requirement at time of presentation. Comprehensive
follow-up has been limited due to the COVID-19 pandemic.
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Enrollment in EU and US Phase 2 "Process B" studies commenced inNovember 2019 with interruptions in enrollment due to COVID-19; additional Phase 2 enrollment resumed in the early third quarter of 2020. Rocket's global registrational trial of RP-L102 for FA will expand to theUniversity of Minnesota which has been open as an additional clinical trial site. In addition,Great Ormond Street Hospital inLondon has opened as additional clinical trial sites for FA and LAD-1. GOSH, together with its academic partner UCL GOS ICH forms the largest concentration of children's health research inEurope . The LAD-I trial first opened at theUniversity of California, Los Angeles , and two patients have already been treated in the Phase 1 trial.
Leukocyte Adhesion Deficiency-I (LAD-I):
LAD-I is a rare autosomal recessive disorder of white blood cell adhesion and migration, resulting from mutations in the ITGB2 gene encoding for the Beta-2 Integrin component, CD18. Deficiencies in CD18 result in an impaired ability for neutrophils (a subset of infection-fighting white blood cells) to leave blood vessels and enter into tissues where these cells are needed to combat infections. As is the case with many rare diseases, true estimates of incidence are difficult; however, several hundred cases have been reported to date. Most LAD-I patients are believed to have the severe form of the disease. Severe LAD-I is notable for recurrent, life-threatening infections and substantial infant mortality in patients who do not receive an allogeneic HSCT. Mortality for severe LAD-I has been reported as 60 to 75% by age two in the absence of allogeneic HCST. We currently have one program targeting LAD-I, RP-L201. RP-L201 is a clinical program that we in-licensed from CIEMAT. We have partnered withUCLA for the Phase 1 U.S. clinical development efforts for the LAD-I program and have dosed two severe LAD-I patients in theU.S. in Phase 1, to assess the safety and tolerability of RP-L201. The study is expected to enroll nine patients globally. This study has received$6.5 million CLIN2 grant award from theCalifornia Institute for Regenerative Medicine ("CIRM") to support the clinical development of gene therapy for LAD-I. In the Phase 2 registration-enabling clinical study,UCLA and its Eli and Edythe Broad Center ofRegenerative Medicine and Stem Cell Research is serving as the leadU.S. clinical research site, and Hospital Infantil Universitario Nino Jesus is serving as the lead clinical site inSpain .Great Ormond Street Hospital inUnited Kingdom has also opened as a clinical site for LAD-I. At the virtual 2020 ASGCT conference we announced two patients were treated in our Phase 1 portion of the study. The first patient treated in our Phase 1/2 study of RP-L201 for the treatment of severe LAD-I, demonstrated an increase in CD18 expression from less than 1% to 45%, sustained over six months. We believe that these results lend further support to the applicability of "Process B" across the lentiviral portfolio. At the virtualEuropean Society for Immunodeficiencies (ESID) 2020 Meeting inOctober 2020 , we provided a clinical update for the Company's LAD-I program. The data presented in the oral presentation was longer-term follow-up data from the Phase 1/2 clinical trial of RP-L201 for LAD-I, from two pediatric patients with severe LAD-I, as defined by CD18 expression of less than 2%. Both patients were treated with RP-L201, our ex-vivo lentiviral gene therapy candidate. Patient L201-003-1001 was 9 years of age at treatment and has been followed for 12 months and Patient L201-003-1004 was 3 years of age at treatment and has been followed for four months. Treatments in both cases were well tolerated, and no safety issues were reported with infusion and post-treatment. Both subjects achieved hematopoietic reconstitution in less than 4 weeks. Patient L201-003-1001 demonstrated durable CD18 expression of 40%, peripheral blood VCN levels of 1.3, visible signs of improvement in existing skin lesions and no new infections reported 12 months post-treatment. Patient L201-003-1004 demonstrated CD18 expression of 28% and early peripheral blood VCN trending similarly to first patient, reported 4 months post-treatment. Preclinical data on IMO indicate that a modest level of engraftment corrects the disease phenotype in vivo, with increased long-term survival, tooth eruption, weight gain and normalized bone resorption. Results support acceleration into clinical development for RP-L401.
Enrollment is now complete in the Phase 1 portion of the study. The first patient was treated in the Phase 2 global registrational study for RP-L201 for LAD-I.
Pyruvate Kinase Deficiency (PKD):
Red blood cell PKD is a rare autosomal recessive disorder resulting from
mutations in the pyruvate kinase L/R ("PKLR") gene encoding for a component of
the red blood cell ("RBC") glycolytic pathway. PKD is characterized by chronic
non-spherocytic hemolytic anemia, a disorder in which RBCs do not assume a
normal spherical shape and are broken down, leading to decreased ability to
carry oxygen to cells, with anemia severity that can range from mild
(asymptomatic) to severe forms that may result in childhood mortality or a
requirement for frequent, lifelong RBC transfusions. The pediatric population is
the most commonly and severely affected subgroup of patients with PKD, and PKD
often results in splenomegaly (abnormal enlargement of the spleen), jaundice and
chronic iron overload which is likely the result of both chronic hemolysis and
the RBC transfusions used to treat the disease. The variability in anemia
severity is believed to arise in part from the large number of diverse mutations
that may affect the PKLR gene. Estimates of disease incidence have ranged
between 3.2 and 51 cases per million in the white U.S. and Europe population.
Industry estimates suggest at least 2,500 cases in the U.S. and Europe have
already been diagnosed despite the lack of FDA-approved molecularly targeted
therapies.
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We currently have one LVV-based program targeting PKD, RP-L301. RP-L301 is a clinical stage program that we in-licensed from CIEMAT. The IND for RP-L301 to initiate a global Phase 1 study was cleared by the FDA inOctober 2019 . This program has been granted EMA orphan drug disease designation and FDA orphan drug disease designation ("ODD"). This global Phase 1 open-label, single-arm, clinical trial is expected to enroll six adult and pediatric transfusion-dependent PKD patients in theU.S. andEurope . The trial will be comprised of three cohorts to assess RP-L301 in young pediatric (age 8-11), older pediatric (age 12-17) and adult populations. The trial is designed to assess the safety, tolerability and preliminary activity of RP-L301, and initial safety evaluation will occur in the adult cohort before evaluation in pediatric patients. Lucile Packard Children's Hospital Stanford will serve as the lead site in theU.S. for adult and pediatric patients, Hospital Infantil Universitario Niño Jesús will serve as the lead site inEurope for pediatrics, and Hospital Universitario Fundación Jiménez Díaz will serve as the lead site inEurope for adult patients. InJuly 2020 , we treated the first patient in our open-label, Phase 1 clinical trial of RP-L301.
Infantile Malignant Osteopetrosis (IMO):
IMO is a genetic disorder characterized by increased bone density and bone mass secondary to impaired bone resorption. Normally, small areas of bone are constantly being broken down by special cells called osteoclasts, then made again by cells called osteoblasts. In IMO, the cells that break down bone (osteoclasts) do not work properly, which leads to the bones becoming thicker and not as healthy. Untreated IMO patients may suffer from a compression of the bone-marrow space, which results in bone marrow failure, anemia and increased infection risk due to the lack of production of white blood cells. Untreated IMO patients may also suffer from a compression of cranial nerves, which transmit signals between vital organs and the brain, resulting in blindness, hearing loss and other neurologic deficits. We currently have one LVV-based program targeting IMO, RP-L401. RP-L401 is a preclinical program that we in-licensed fromLund University ,Sweden . This program has been granted ODD and Rare Pediatric Disease designation from the FDA, as well as FDA Fast Track Designation. The FDA defines a "rare pediatric disease" as a serious and life-threatening disease that affects less than 200,000 people in theU.S. that are aged between birth to 18 years. The Rare Pediatric Disease designation program allows for a sponsor who receives an approval for a product to potentially qualify for a voucher that can be redeemed to receive a priority review of a subsequent marketing application for a different product.
In
We have partnered withUCLA to leadU.S. clinical development efforts for the IMO program and anticipate thatUCLA will serve as the leadU.S. clinical site for IMO. The IND for RP-L401 to initiate a global Phase 1 study was cleared by the FDA inJune 2020 . The non-randomized, open-label Phase 1 clinical trial will enroll two pediatric patients, one month of age or older. The trial is designed to assess safety and tolerability of RP-L401, as well as preliminary efficacy, including potential improvements in bone abnormalities/density, hematologic status, and endocrine abnormalities. Recruitment is currently open for this clinical trial.
CRISPR/Cas9 gene editing in Fanconi Anemia:
In addition to our LVV and AAV programs, we also have a program evaluating
CRISPR/Cas9-based gene editing for FA. This program is currently in the
discovery phase. CRISPR/Cas9-based gene editing is a different method of
correcting the defective genes in a patient, where the editing is very specific
and targeted to a particular gene sequence. "CRISPR/Cas9" stands for Clustered,
Regularly Interspaced Short Palindromic Repeats ("CRISPR") Associated protein-9.
The CRISPR/Cas9 technology can be used to make "cuts" in DNA at specific sites
of targeted genes, making it potentially more precise in delivering gene
therapies than traditional vector-based delivery approaches. CRISPR/Cas9 can
also be adapted to regulate the activity of an existing gene without modifying
the actual DNA sequence, which is referred to as gene regulation.
Strategy
We seek to bring hope and relief to patients with devastating, undertreated,
rare pediatric diseases through the development and commercialization of
potentially curative first-in-class gene therapies. To achieve these objectives,
we intend to develop into a fully integrated biotechnology company. In the near-
and medium-term, we intend to develop our first-in-class product candidates,
which are targeting devastating diseases with substantial unmet need, develop
proprietary in-house analytics and manufacturing capabilities and continue to
commence registration trials for our currently planned programs. In the medium
and long-term, we expect to submit our first biologics license applications
("BLAs") and establish our gene therapy platform and expand our pipeline to
target additional indications that we believe to be potentially compatible with
our gene therapy technologies. In addition, during that time, we believe that
our currently planned programs will become eligible for priority review vouchers
from the FDA that provide for expedited review. We have assembled a leadership
and research team with expertise in cell and gene therapy, rare disease drug
development and commercialization.
We believe that our competitive advantage lies in our disease-based selection
approach, a rigorous process with defined criteria to identify target diseases.
We believe that this approach to asset development differentiates us as a gene
therapy company and potentially provides us with a first-mover advantage.
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Financial Overview
Since our inception, we have devoted substantially all of our resources to organizing and staffing, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights, conducting discovery, research and development activities for the programs and planning for potential commercialization. We do not have any products approved for sale and have not generated revenue from product sales. From inception throughSeptember 30, 2020 , we raised net cash proceeds of approximately$373.1 million from investors through both equity and convertible debt financing to fund operating activities. As ofSeptember 30, 2020 , we had cash, cash equivalents and investments of$228.7 million . Since inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of the current or future product candidates and programs. We had net losses of$78.8 million for the nine months endedSeptember 30, 2020 and$77.3 million for the year endedDecember 31, 2019 . As ofSeptember 30, 2020 , we had an accumulated deficit of$261.9 million . We expect to continue to incur significant expenses and higher operating losses for the foreseeable future as we advance our current product candidates from discovery through preclinical development and clinical trials and seek regulatory approval of our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, we expect to incur additional costs as a public company as we transition out of emerging growth company status. Accordingly, we will need additional financing to support continuing operations and potential acquisitions of licensing or other rights for product candidates. Until such a time as we can generate significant revenue from product sales, if ever, we will seek to fund our operations through public or private equity or debt financings or other sources, which may include collaborations with third parties and government programs or grants. Adequate additional financing may not be available to us on acceptable terms, or at all. We can make no assurances that we will be able to raise the cash needed to fund our operations and, if we fail to raise capital when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay pursuit of potential in-licenses or acquisitions. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
Revenue
To date, we have not generated any revenue from any sources, including from product sales, and we do not expect to generate any revenue from the sale of products in the near future. If our development efforts for product candidates are successful and result in regulatory approval or license agreements with third parties, we may generate revenue in the future from product sales.
Operating Expenses
Research and Development Expenses
Our research and development program ("R&D") expenses consist primarily of external costs incurred for the development of our product candidates. These expenses include:
• expenses incurred under agreements with research institutions that conduct
research and development activities including, process development,
preclinical, and clinical activities on our behalf;
• costs related to process development, production of preclinical and clinical
materials, including fees paid to contract manufacturers and manufacturing
input costs for use in internal manufacturing processes;
• consultants supporting process development and regulatory activities; and
• costs related to in-licensing of rights to develop and commercialize our
product candidate portfolio.
We recognize external development costs based on contractual payment schedules aligned with program activities, invoices for work incurred, and milestones which correspond with costs incurred by the third parties. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Our direct research and development expenses are tracked on a program-by-program basis for product candidates and consist primarily of external costs, such as research collaborations and third-party manufacturing agreements associated with our preclinical research, process development, manufacturing, and clinical development activities. Our direct research and development expenses by program also include fees incurred under license agreements. Our personnel, non-program and unallocated program expenses include costs associated with activities performed by our internal research and development organization and generally benefit multiple programs. These costs are not separately allocated by product candidate and consist primarily of:
• salaries and personnel-related costs, including benefits, travel and
stock-based compensation, for our scientific personnel performing research and
development activities;
• facilities and other expenses, which include expenses for rent and maintenance
of facilities, and depreciation and amortization expense and;
• laboratory supplies and equipment used for internal research and development
activities.
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Our research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development. As a result, we expect that research and development expenses will increase substantially over the next several years as we increase personnel costs, including stock-based compensation, support ongoing clinical studies, seek to achieve proof-of-concept in one or more product candidates, advance preclinical programs to clinical programs, and prepare regulatory filings for product candidates. We cannot determine with certainty the duration and costs to complete current or future clinical studies of product candidates or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs, and timing of clinical studies and development of product candidates will depend on a variety of factors, including:
• the scope, rate of progress, and expense of ongoing as well as any future
clinical studies and other research and development activities that we
undertake;
• future clinical trial results;
• uncertainties in clinical trial enrollment rates;
• changing standards for regulatory approval; and
• the timing and receipt of any regulatory approvals.
We expect research and development expenses to increase for the foreseeable future as we continue to invest in research and development activities related to developing product candidates, including investments in manufacturing, as our programs advance into later stages of development and as we conduct additional clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates. Our future research and development expenses will depend on the clinical success of our product candidates, as well as ongoing assessments of the commercial potential of such product candidates. In addition, we cannot forecast with any degree of certainty which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. We expect our research and development expenses to increase in future periods for the foreseeable future as we seek to complete development of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:
• the scope, progress, outcome and costs of our clinical trials and other
research and development activities;
• the efficacy and potential advantages of our product candidates compared to
alternative treatments, including any standard of care;
• the market acceptance of our product candidates;
• obtaining, maintaining, defending and enforcing patent claims and other
intellectual property rights;
• significant and changing government regulation; and
• the timing, receipt and terms of any marketing approvals.
A change in the outcome of any of these variables with respect to the development of our product candidates that we may develop could mean a significant change in the costs and timing associated with the development of our product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we currently contemplate for the completion of clinical development of any of our product candidates that we may develop or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.
General and Administrative Expenses
General and administrative ("G&A") expenses consist primarily of salaries and
related benefit costs for personnel, including stock-based compensation and
travel expenses for our employees in executive, operational, finance, legal,
business development, and human resource functions. In addition, other
significant general and administrative expenses include professional fees for
legal, patents, consulting, investor and public relations, auditing and tax
services as well as other expenses for rent and maintenance of facilities,
insurance and other supplies used in general and administrative activities. We
expect general and administrative expenses to increase for the foreseeable
future due to anticipated increases in headcount to support the continued
advancement of our product candidates. We also anticipate that we will incur
increased accounting, audit, legal, regulatory, compliance and director and
officer insurance costs as well as investor and public relations expenses.
Interest Expense
Interest expense is related to the 2021 Convertible Notes, which mature in
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Interest Income
Interest income is related to interest earned from investments.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in theU.S. The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in more detail in our 2019 Form 10-K.
Results of Operations
Comparison of the Three Months Ended
The following table summarizes the results of operations for the three months
ended
Three Months Ended
2020 2019 Change
Operating expenses:
Research and development $ 21,657 $ 14,829 $ 6,828
General and administrative 5,730 4,336 1,394
Total operating expenses 27,387 19,165 8,222
Loss from operations (27,387 ) (19,165 ) (8,222 )
Interest expense (1,967 ) (1,466 ) (501 )
Interest and other income net 518 979 (461 )
(Amortization of premium) accretion of discount on investments - net
(244 ) 368 (612 ) Total other expense, net (1,693 ) (119 ) (1,574 ) Net loss$ (29,080 ) $ (19,284 ) $ (9,796 )
Research and Development Expenses
R&D expenses increased$6.8 million to$21.7 million for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 . The increase was primarily due to increases in compensation and benefits of$1.3 million due to increased R&D headcount, an increase in non-cash stock compensation expense of$0.9 million , an increase in manufacturing and development costs of$1.9 million , an increase in license fees for$0.8 million due to milestones achieved during the third quarter of 2020, and an increase in clinical trial expenses of$2.4 million , offset by the CIRM grant receivable of$1.1 million for LAD-I which was offset against Q-3, 2020 R&D expenses.
General and Administrative Expenses
G&A expenses increased$1.4 million to$5.7 million for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 . The increases in G&A expenses were primarily driven by an increase in non-cash stock compensation expense of$0.5 million , an increase in compensation and benefits of$0.3 million due to increased G&A headcount, an increase in office and administrative costs of$0.2 million , and an increase in legal expenses of$0.2 million . Other Expense, Net Other expense, net was$1.7 million for the three months endedSeptember 30, 2020 compared to$0.1 million for the three months endedSeptember 30, 2019 . The change was primarily due to a decrease in interest and accretion income related to our investments of$1.1 million due to lower interest rates and an increase in interest expense of$0.5 million .
Comparison of the Nine Months Ended
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The following table summarizes the results of operations for the nine months
ended
Nine Months Ended
2020 2019 Change
Operating expenses:
Research and development $ 55,345 $ 43,955 $ 11,390
General and administrative 19,720 12,547 7,173
Total operating expenses 75,065 56,502 18,563
Loss from operations (75,065 ) (56,502 ) (18,563 )
Interest expense (5,326 ) (4,615 ) (711 )
Interest and other income net 1,913 2,522 (609 )
(Amortization of premium) accretion of discount on investments - net (306 ) 930 (1,236 )
Total other expense, net (3,719 ) (913 ) (2,806 )
Net loss $ (78,784 ) $ (57,415 ) $ (21,369 ) Research and Development Expenses
R&D expenses increased$11.4 million to$55.3 million for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 . The increase was primarily a result of an increase in manufacturing and process development expenses of$0.9 million ; an increase in manufacturing consumables of$1.9 million , an increase in compensation expense of$4.0 million due to increased R&D headcount; an increase in clinical trials expense of$3.7 million , an increase in amortization expense related to theCranbury lease of$1.2 million , an increase in lab supplies of$1.1 million , offset by the CIRM grant receivable of$1.1 million which was offset against LAD-I R&D expenses, and a decrease in research agreements of$1.4 million primarily due to the$1.4 million license payment for the LCGM facility made in 2019.
General and Administrative Expenses
G&A expenses increased$7.2 million to$19.7 million for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 . The increase in G&A expenses was primarily driven by fees incurred in connection with the February andJune 2020 convertible notes exchange of an aggregate of$2.0 million , an increase in non-cash stock compensation expense of$2.2 million , an increase in compensation and benefits of$1.7 million due to increased G&A headcount and an increase in office and administrative expense of$0.8 million due primarily to increased insurance expense for the nine months endedSeptember 30, 2020 as compared to the same period in 2019.
Other Expense, Net
Other expense, net was$3.7 million for the nine months endedSeptember 30, 2020 compared to$0.9 million for the nine months endedSeptember 30, 2019 . The change was primarily due to a decrease in interest income related to our investments of$1.8 million due to lower interest rates, an increase in interest expense of$0.7 million , and a decrease in research and development incentives due to the receipt of the NYC biotech tax credit in 2019, which was phased out by NYC and did not reoccur in 2020.
Liquidity, Capital Resources and Plan of Operations
Since inception, we have not generated any revenue from any sources, including
from product sales, and have incurred significant operating losses and negative
cash flows from our operations. We have funded operations to date primarily with
proceeds from the sale of preferred shares, common stock and the issuance of
convertible notes.
Cash Flows
The following table summarizes our cash flows for each of the periods presented:
Nine Months Ended September 30,
2020 2019
Cash used in operating activities $ (61,531 ) $ (44,930 )
Cash used in investing activities (42,129 ) (62,525 )
Cash provided by financing activities 546 85,384
Net change in cash, cash equivalents and restricted cash
Operating Activities During the nine months endedSeptember 30, 2020 , operating activities used$61.5 million of cash, primarily resulting from our net loss of$78.8 million offset by net non-cash charges of$15.5 million , including non-cash stock-based compensation expense of$12.5 million and accretion of the discount on convertible notes of$2.1 million . Changes in our operating assets and liabilities for the nine months endedSeptember 30, 2020 consisted of an increase in prepaid expenses and other assets of$1.4 million , and a decrease in accounts payable and accrued expenses of$1.8 million . 28
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During the nine months endedSeptember 30, 2019 , operating activities used$44.9 million of cash, primarily resulting from our net loss of$57.4 million offset by net non-cash charges of$12.2 million , including stock-based compensation expense of$10.0 million and accretion of discount on convertible notes of$2.7 million . Changes in Rocket's operating assets and liabilities for the nine months endedSeptember 30, 2019 consisted of an increase in prepaid expenses and other assets of$1.6 million and a decrease in accounts payable and accrued expenses of$2.0 million .
Investing Activities
During the nine months endedSeptember 30, 2020 , net cash used by investing activities was$42.1 million , consisting of proceeds of$104.1 million from the maturities of investments, offset by purchases of investments of$132.1 million , purchases of property and equipment of$7.0 million , payments made to acquire right of use asset of$6.5 million , and purchases of internal use software of$0.6 million .
During the nine months ended
Financing Activities
During the nine months endedSeptember 30, 2020 , net cash provided by financing activities was$0.5 million , consisting primarily of issuance of common stock of$0.9 million , offset by payments of withholding tax on option exercises. During the nine months endedSeptember 30, 2019 , net cash provided by financing activities was$85.4 million , consisting of proceeds from the issuance of common stock of$86.1 million , offset by share repurchases of$0.7 million .
Funding Requirements
We expect expenses to increase substantially in connection with our ongoing activities, particularly as we advance our preclinical activities, and initiate additional clinical trials and manufacturing of our product candidates. In addition, we expect to incur additional costs associated with operating as a public company as we transition from being an emerging growth company. Our expenses will also increase as we:
• leverage our programs to advance other product candidates into preclinical and
clinical development;
• seek regulatory agreements to initiate clinical trials in the
ROW;
• establish a sales, marketing, medical affairs and distribution infrastructure
to commercialize any product candidates for which Rocket may obtain marketing
approval and intend to commercialize on its own or jointly;
• hire additional preclinical, clinical, regulatory, quality and scientific
personnel;
• expand our operational, financial and management systems and increase
personnel, including personnel to support our clinical development,
manufacturing and commercialization efforts and our operations as a public
company;
• maintain, expand and protect our intellectual property portfolio; and
• acquire or in-license other product candidates and technologies.
As of
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of working capital requirements. Our future funding requirements will depend on, and could increase significantly as a result of, many factors, including:
• the scope, progress, results and costs of researching and developing our
product candidates, and conducting preclinical studies and clinical trials;
• the costs, timing and outcome of regulatory review of our product candidates;
• the costs of future activities, including product sales, medical affairs,
marketing, manufacturing and distribution, for any of our product candidates
for which we receive marketing approval;
• the costs of manufacturing commercial-grade product to support commercial
launch;
• the ability to receive additional non-dilutive funding, including grants from
organizations and foundations;
• the revenue, if any, received from commercial sale of its products, should any
of its product candidates receive marketing approval;
• the costs of preparing, filing and prosecuting patent applications, maintaining
and enforcing our intellectual property rights and defending intellectual
property-related claims;
• our ability to establish and maintain collaborations on favorable terms, if at
all;
• the extent to which we acquire or in-license other product candidates and
technologies; and
• the timing, receipt and amount of sales of, or milestone payments related to
our royalties on, current or future product candidates, if any.
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Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, additional debt financing would result in increased fixed payment obligations. If we raise funds through governmental funding, collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts or grant rights to develop and market product candidates that it would otherwise prefer to develop and market themselves.
Contractual Obligations and Commitments
There were no material changes outside the ordinary course of our business to the contractual obligations specified in the table of contractual obligations included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 Form 10-K. Information regarding contractual obligations and commitments may be found in Note 11 of our Consolidated Unaudited Financial Statements in this Form 10-Q.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSecurities and Exchange Commission .
JOBS Act
Under Section 107(b) of the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), an "emerging growth company" can delay the adoption of new or revised accounting standards until such time as those standards would apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, as a result, we will adopt new or revised accounting standards at the same time as other public companies that are not emerging growth companies. There are other exemptions and reduced reporting requirements provided by the JOBS Act that we are currently evaluating. For example, as an emerging growth company, we are exempt from Sections 14A(a) and (b) of the Securities Exchange Act of 1934 (the "Exchange Act"), which would otherwise require us to (i) submit certain executive compensation matters to stockholder advisory votes, such as "say-on-pay," "say-on-frequency" and "golden parachutes" and (ii) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of our Chief Executive Officer's compensation to our median employee compensation. We rely on an exemption from the rule requiring us to provide an auditor's attestation report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and the rule requiring us to comply with any requirement that may be adopted by thePublic Company Accounting Oversight Board ("PCAOB") regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements as the auditor discussion and analysis. We will continue to remain an "emerging growth company" untilDecember 31, 2020 .
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 3 of our "Consolidated Unaudited Financial Statements," in this Quarterly Report on Form 10-Q.
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